Payroll Giving vs Gift Aid

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When we choose to give, we want every penny to count, yet every year an incredible amount of impact is left on the table. HMRC estimates that approximately £562 million in Gift Aid goes unclaimed annually: vital funding that sits dormant simply due to the administrative hurdles charities face in chasing declarations and processing manual claims. By switching to Payroll Giving, you can instantly bridge this gap.

Because your donation is taken directly from your gross pay before tax is even calculated, the tax relief is immediate and automatic. There is no paperwork for the charity, and no revenue is missed; your contribution reaches the frontline of your chosen cause at its full value from day one. It is the most powerful and efficient way to turn your generosity into action, ensuring that your hard-earned money goes exactly where it's needed most—directly to the causes you care about.

Tax Relief on Charitable Donations

The reality of Payroll Giving is that because you donate pre-tax, your chosen charity will ultimately receive more than it costs you. Gift Aid was introduced in 1990 and is a form of tax relief for charitable donations. It's easy to get confused about the most tax-efficient way to give, so please read on to find out!

Payroll Giving means charities get more

Payroll Giving allows employees who pay UK income tax under PAYE to give regularly and tax-free to ANY charity, good cause or place of worship. Their donations come directly from their gross pay before income tax is deducted, and their charity receives the full gross amount of the donation. So, the charities receive more, and the employees pay less income tax.

The immediate tax relief on charitable donations has a massive impact on the amount that charities receive. Payroll Giving is an easy and efficient way of helping good causes while you work, and making your donations work as hard as you do.

What is Gift Aid?

Donations made with Gift Aid are made from your income after income tax has been deducted. The charity receives your donation and can then claim back from HMRC the tax you paid on that donation amount. So, the system enhances the amount you've given to charity, but it doesn't cost you any more than the original amount you decided to donate. However, it is capped at 25%, regardless of whether you paid 20%, 40%- or 45%-income tax.

What's the difference between Payroll Giving and Gift Aid?

Payroll Giving is taken straight from the employee's gross pay, before income tax is deducted, so the charity does not need to claim the tax back from HMRC, saving them money in administration.

Gift Aid, donations are made after income tax has been paid, so charities need to claim the tax back from HMRC.

Gift Aid is also capped at 25%, meaning charities can only claim the basic income tax rate paid. Therefore, it is even more efficient for higher-rate taxpayers to donate through Payroll Giving than Gift Aid, as charities can receive even more tax benefits without costing the donor.

Why is Payroll Giving better than Gift Aid?

Payroll Giving allows charities to plan better and create a greater impact through their work, because donations are regular and reliable, and they don't need to claim the tax benefit back. Instead, they get the full amount reducing charities’ admin time and costs. The tax benefit from Payroll Giving donations is also larger than Gift Aid, as it is not capped, which means that donations from those supporters who pay a higher income tax are worth even more to charities.

If you make an £18.18 Payroll Giving donation, your chosen charity will receive £18.18, but your net pay (the actual income you receive) will only be reduced by £10. So, your donation in real terms only costs you £10, but the charity will receive £18.18.

If you made the same £10 donation via another method (e.g. direct debit) and ticked the Gift Aid box, the charity could claim an additional £2.50 from the HMRC, making your total donation worth £12.50.

With Payroll Giving vs Gift Aid, your £10 donation is worth £18.18 with Payroll Giving instead of £12.50 with Gift Aid.

If you make a £16.66 Payroll Giving donation, your chosen charity will receive £16.66, but your net pay (the actual income you receive) will only be reduced by £10. So, your donation in real terms only costs you £10, but the charity will receive £16.66.

With Payroll Giving vs Gift Aid, your £10 donation is worth £16.66 with Payroll Giving instead of £12.50 with Gift Aid.

If you make a £12.50 Payroll Giving donation, your chosen charity will receive £12.50, but your net pay (the actual income you receive) will only be reduced by £10. So, the donation in real terms only costs you £10, but the charity will receive £12.50.

With Payroll Giving vs. Gift Aid, your £10 donation is worth £12.50 in both cases. However, with Payroll Giving, the charity will receive £12.50 straight away, but with Gift Aid, it will only receive your £10 donation. Then, it will have to claim the additional £2.50 back from HMRC in the future, costing them time and money in administration.

Better than Gift Aid

In summary, Payroll Giving donations are worth up to 88% more than cash and direct debit donations. The amount your chosen charity receives will always be equal to or better than Gift Aid.

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